The first half of 2023 was a great boon for Advanced Micro Devices (AMD) investors.

AMD rallied beginning in early January. And the chipmaker’s uptrend accelerated in May as the market bid up stocks that were set to benefit from the AI boom.

In a little over a month, AMD gained a massive 61%.

And it saw its stock price more than double from the start of the year.

But it had overshot to the upside, so AMD reversed in mid-June as buying momentum waned.

We last checked in on AMD in late August (red arrow in the chart below). At that time, it was drifting lower and stuck in a malaise that carried right through to late October.

But with AMD ripping over 32% higher in just the past month, let’s see what’s in store.

A False Breakout

The chart below shows AMD’s clear uptrend right from the start of the year.

During this time, AMD made a series of higher lows and higher highs, which is a common bullish pattern.

You’ll also notice the 50-day moving average (MA, blue line) steadily climb higher.

Advanced Micro Devices (AMD)

Source: eSignal

Other than a brief dip from April into May, the relative strength index (RSI) tracked bullishly in its upper band (above the green line). This showed AMD’s positive momentum throughout its uptrend.

Yet a reversal pattern caused AMD to peak and turn down from its highs in mid-June.

While AMD was making higher highs (left upper orange line), the RSI was trending lower, making lower highs (left lower orange line).

When the RSI falls like this, it will eventually drag the stock price lower. And that is what we saw…

After its initial pullback, AMD continued to drift lower. The RSI couldn’t hold support and fell steadily into its lower band.

Adding to the bearish sentiment, the 10-day MA (red line) crossed beneath the 50-day MA with both MAs tracking lower.

Then AMD tried to rally in September, but that turned out to be a false move.

Take another look:

Advanced Micro Devices (AMD)

Source: eSignal

In November, the RSI rallied from oversold territory. And when the RSI broke through resistance (green line), AMD’s current rally was able to get underway.

AMD beating forecasted Q3 earnings led to that initial surge on November 1.

It continued to rally with the 10-day MA breaking strongly above the 50-day MA.

But AMD’s recent surge put it back into overbought territory.

So what can we expect from here?

Reversal Pattern Repeats

On the chart, you can see that AMD has continued to make higher highs (right upper orange line) this past month.

But its rally is becoming less steep (as shown by the 10-day MA).

So even though AMD is still rallying, buyers could be starting to lose their conviction.

And that’s also backed up by the RSI, which has recently flatlined (right lower orange line) around overbought territory.

This pattern led to AMD’s reversal when these two signals were diverging like this mid-year.

If the RSI breaks lower and starts tracking back toward support, it could set up a potential short trade.

Regards,

Larry Benedict
Editor, Trading With Larry Benedict

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